Madrid cuts taxes to encourage investing in flats and homes

Effective on January 1st 2014, a tax reduction in the Madrid region will basically benefit the second-hand home buyers. However, in the municipal budgets of the city of Madrid, a possible increase of the IBI (equivalent to what in the UK is called the Council Tax) of 6.4% is being established.

With the brilliant idea of reactivating the current sluggishness of the housing market, Madrid has reduced the Patrimonial Transfer Tax and the Legal Acts Tax. The Madrid authorities are making it easier to investors.

The ITP, or PATRIMONIAL TRANSFER TAX- Being the tax that burdens the sale of second-hand flats, the reduction will benefit this segment of the market. In the Madrid region it was at 7% and with the reduction, it will only be 6%, becoming the lowest in all of Spain. This is opposite the current ridiculous rate of 10% in Andalusia, Asturias, Valencia or Catalonia, where the tax office charges rose in August 2013 from 8% to 10%. This should be compared to the IVA that is applied to new homes, which was increased in January ’13 from the super-reduced 4% to 10%.

In the case of a taxpayer buying a second-hand home in Madrid valued at €150,000, he or she will pay €9,000 € in taxes (€1,500 less with the announced reduction). But if this same sale is done in Catalonia, Valencia, or Galicia, he or she will pay €15,000 (which totals €6,000 more than in Madrid).

The AJD (Actos Jurídicos Documentados), or DOCUMENTED LEGAL ACTS TAX– In this case, the modification will most directly affect the new built home, being that this notarized documents tax taxes the deeds that formalize mortgages and new homes. It is being reduced from 1% to 0.75%, becoming the lowest in Spain.

In the case of buying a new flat for a price of €150,000, the buyer will pay €1,125 in AJD, (which supposes a savings of €375), instead of the €2,250 that someone buying a flat of the same value will pay in Galicia or Catalonia, which is double.